## Mexico - Marking the Retirement of its Brady Bonds, address by Horst Köhler, Managing Director of the IMF

_IMF News, June 12, 2003_

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## Bibliographic details
- Published: June 12, 2003

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### Introduction
- Speech delivered at a Celebration at Los Pinos, Mexico City, June 12, 2003.
- Purpose: celebrate Mexico's early repurchase of its Brady bonds and broader political and economic transformation.
- Highlights:
  - Political transition to a vibrant multi-party democracy.
  - Economic move from deep debt and recurrent financial crisis to growing leadership among emerging market countries.
  - Credit attributed to the Mexican people and their leaders for sustained political and economic reform.

### Achievements
- Macroeconomic stabilization and performance:
  - Inflation had reached 100 percent during the 1980s; now "firmly in the single-digit range."
  - Current account deficit reduced from an average of more than 7 percent of GDP pre-1994-95 crisis to a sustainable 2-3 percent of GDP.
  - International reserves increased ten-fold over the past decade to over US$50 billion.
  - Mexico has moved from being a debtor to being a creditor of the Fund.
- Growth and social indicators:
  - Real GDP growth has averaged 4 percent since the mid-1990s—nearly twice as fast as during the 1980s.
  - Exports now comprise 30 percent of GDP—nearly double the share in 1985.
  - Improvements in key social indicators: life expectancy, infant mortality, and adult literacy.
- Structural and policy reforms contributing to recovery:
  - Fiscal policy and debt management: improved efficiency and transparency; quasi-fiscal activities controlled; targeted transfers to the poor; leadership in developing domestic debt market and investor relations.
  - Monetary and exchange rate policy: close to a decade of experience with a flexible exchange rate and movement toward a full inflation-targeting regime supported by an independent central bank.
  - Financial sector: restored stability after 1994-95 liquidity and solvency problems; regulation and supervision moving toward international best practice; increased competitiveness through foreign investment.
  - Trade openness and NAFTA (entry in 1994): fostered a strong traded sector, matching high financial market integration and spurring innovation and competition.
  - Institutional reforms: privatization and deregulation in key industries; stronger domestic bankruptcy framework; initiatives to strengthen transparency in fiscal and financial areas.

### Forward-looking challenges
- Primary challenges: raising growth and reducing poverty—interconnected goals.
- Recent trends and sources of weakness:
  - Growth has recently slowed after acceleration in the late 1990s.
  - Poverty remains high with significant regional disparities.
  - Slowdown reflects cyclical weakness in the United States and weakening stimuli from contributors to 1990s growth, such as NAFTA.
- Policy agenda (National Development Plan) priorities and recommended reforms:
  - Fiscal reform:
    - Further reform and strengthening of the fiscal position within a prudent medium-term framework.
    - Sustained further reductions in the broad fiscal deficit (the PSBR) are essential to address remaining financial vulnerabilities and improve public debt dynamics.
    - Tax reform emphasized due to considerable infrastructure financing needs, relatively low share of non-oil revenues, and scope to broaden the tax base and reduce evasion.
  - Labor-market reform:
    - Increase labor-market flexibility toward levels of Mexico's main trading partners to boost employment, productivity, and integration of marginalized workers.
    - Business and labor groups have collaborated on draft legislation to move in this direction; passage would improve competitiveness.
  - Institutional and business environment reforms:
    - Create an open and supportive environment for private business in infrastructure to attract needed investment and exploit energy resources.
    - Improve governance of public enterprises via robust, market-based structures to achieve greater efficiencies.
  - Social policy and governance:
    - Prioritize education and human capital development, with responsibilities increasingly at decentralized government levels; require consensus across regions for clear reform frameworks.
    - Efforts to combat corruption seen as important for social equity, as corruption disproportionately burdens smaller businesses and the poor.

### Role of the IMF and regional outlook
- IMF objectives in international financial architecture:
  - Two-fold challenge: prevent crises and improve crisis resolution when they occur; intensified efforts to learn from recent crises.
- Crisis prevention and surveillance:
  - Emphasis areas: more flexible exchange rates; stronger fiscal positions, institutions, and debt management; efficient and diversified financial sectors; operational autonomy for central banks; increased transparency.
  - Mexico cited as an example of correcting macroeconomic and financial weaknesses to reduce vulnerability.
- Crisis resolution and sovereign debt restructuring:
  - Promotion of collective action clauses (CACs) in emerging market bond issues as a key step.
  - Mexico led by issuing government bonds under New York law with CACs earlier in the year; others have followed and CACs look likely to become standard.
- Latin America outlook:
  - Six months prior, the region experienced negative growth—the worst in at least a decade.
  - Since then, some downside risks receded; Latin America expected to recover in 2003, with growth rising to over 4 percent in 2004.
  - Recovery driven by rising political consensus for stronger economic policies; Fund has supported sustainable macroeconomic frameworks and strengthened social safety nets.
  - Markets have responded; macroeconomic and financing pressures have begun to ease.
  - Challenge: transition from emerging recovery to sustained growth with improved equity over the medium term.
  - Mexico accounts for fully a quarter of regional GDP; its continued success is crucial to regional prosperity.
- IMF personnel note:
  - Agustin Carstens has agreed to become Deputy Managing Director at the IMF—the first from Mexico; anticipated to be a valuable resource for the IMF membership.

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## References

- [Mexico and the IMF](http://www.imf.org/external/country/MEX/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [Horst Köhler](https://www.imf.org/external/np/omd/bios/hk.htm)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp061203a_